Homeownership Cycle and Inventory

An interesting homeownership cycle begins with a starter home and progresses to larger and smaller homes throughout a person's lifetime.  Within a few years after purchasing their initial home, they might move up to a little larger house.  The reasons could be that they simply want a larger home and can afford it, or their increased family size may be motivating the move.

While the children are small, they can probably get by with less space but as they grow and behave more like adults, even though they may not be, the need for more room becomes more pressing.  Depending on the size of the family, this will last some time and then, as they go off to college, enter the work force and find their own living space, the parents may find that they no longer need the larger home. 

In the interest of saving money or possibly convenience, they migrate from a larger home to a smaller home until they consider an assisted living facility or possibly, a nursing home.  Another alternative, many homeowners are electing is to move in with their children or other family members.  Some homeowners are even retro-fitting their homes with equipment and safety devices that will allow them to continue to live in their homes in old age.

According to the American Community Survey, a person in the United States can expect to move 11.7 times in their lifetime.  When that person is 18 years old, they can expect to move another 9.1 times and by age 45, they can expect another 2.7 moves in their lifetime.

One of the suspected reasons affecting the low housing inventory in America at this time is the group of homeowners who would move but are reluctant because the home will sell and with the shortage of homes, they may not be able to replace it with what they want.

The fact that builders have not kept up with the demand in the past twenty years has been a major contributor to the low inventory that housing is currently experiencing.  It is estimated that it will take two million new homes a year for the next decade to get caught up, assuming demand doesn't increase.

There are also other factors involved like the fact that since 2007, the owner's tenure in their home has more than doubled from five years to 10.6 years.  People are staying in their homes longer which means the homes are not coming on the market for sale.

Another consideration is that sellers with extremely low mortgage rates are reluctant to buy another house which would have to be financed at a higher rate than they are currently paying.

Regardless of where you are in the homeownership cycle, your agent can provide important information and experience that is essential to making a smooth move.  Having the facts reduces the risk of unexpected outcomes.

Mortgage Forbearance

Some homeowners who could not afford to make their mortgage payments this past year have been relieved to find out that their mortgage servicer or lender allowed them to pause or possibly, reduce their payments for a limited period.  While it does relieve the financial pressure, it is a temporary remedy.

About 2/3 of the people who entered forbearance during the pandemic have exited the program.  There are only a little over two million homeowners remaining in forbearance.

It is important for owners who find that they cannot make the payments on their mortgage to contact their lender and request a forbearance.  If you stop making mortgage payments without a forbearance agreement, the servicer will report this information to the credit reporting companies, and it can have a lasting negative impact on your credit history. Without going through that process, the lender assumes you are delinquent, and protections afforded under forbearance may not apply.

Forbearance does not forgive the money that is owed.  The borrower must repay any missed or reduced payments in the future.  If forbearance was issued under the CARES Act, the lender cannot require payment in full at the end of the forbearance.  Additionally, Fannie Mae has declared "following forbearance, you are not required to repay missed payments all at once, but you have that option."

The forbearance agreement issued by the lender allows a borrower to avoid foreclosure for a period until, hopefully, the borrower's financial situation improves.  If at the end of the stated period, the borrower's hardship still exists, the lender may be able to extend the time frame.

The provisions of the forbearance vary based on the type of mortgage.  The lender can tell you the specific provisions and options.

Loans made by Fannie Mae and Freddie Mac require lenders to suspend reports to credit bureaus of past due payments for borrowers in a forbearance plan and no penalties or late fees will be assessed.  Furthermore, the lender is mandated to "work with the borrower on a permanent plan to help maintain or reduce monthly payment amounts as necessary, including a loan modification."

At the end of the forbearance, there can be several options available to repay the suspended or paused amounts.  You can resume your normal payment and repayment plan can be established.  If you can start making the payment but can't afford additional payments, the missed payments could be added to the end of the loan or possibly, a secondary lien that is due and payable when you refinance, sell or terminate your mortgage.

In cases where the borrower can't afford to make the regular payments, a loan modification may be available with lower payments, but the term would be extended.  While the CARES Act does not require borrowers at the end of the forbearance period to repay skipped payments in a lump sum, if a borrower is able, they may do so. 

The purpose of this is to re-establish a payment plan that the borrower can repay the money owed.  To be eligible for a loan modification, borrowers must show they cannot make the current mortgage payments because of financial hardship while demonstrating they can meet their obligations with the proposed restructured terms.

Under the CARES Act, borrowers with a GSE-backed mortgage are entitled to an additional 180-day extension which would be a total of 360 days.  It is necessary to contact the servicer/lender for the extension.

There can be both legal and tax issues concerning in forbearance and professional advice is recommended.  A list of U.S. Department of Housing and Urban Development approved Counseling agencies are available.

Selecting the Right Agent in a Seller's Market

Even in the current, low inventory housing market, sellers are resisting the urge to sell it themselves and still seeking the help of a real estate professional.  It may be more important than ever and there is too much at stake to risk going it alone.

The number of people attempting to sell on their own has been in steady decline since 2003 from 14% to 8% in the latest Profile of Home Buyers and Sellers produced by the National Association of REALTORS®.

The most frequently mentioned difficulties that owners who decided to sell it without the benefit of an agent included preparing the home for sale, understanding, and performing the paperwork, getting the price right and selling it within the length of time planned.  Another commonly cited challenge was having enough time to devote to all aspects of the sale.

The other nine out of ten homeowners who are selling are many times faced with the question: "How do I determine which agent to use?"  In some situations, owners know more than one agent and the dilemma becomes picking the right person for the job.

To get the answers that will lead to selecting the right agent, an owner needs to ask the right questions.  Open-ended questions will give you a more descriptive answer that can bring clarity to your decision.  Questions that begin with who, what, when, where, why and how will elicit a much more robust answer.

The following suggestions should be helpful for homeowners considering selling:

• How long have you been selling homes and is this your full-time job?
• What designations or other credentials do you have?
• How many homes did you and your company sell last year?
• What is your average market time compared to MLS and your top competitors?
• What is your sales price to list price ratio?
• When will you report to me on the progress of my transaction?
• Who can you recommend for service providers like mortgage, inspections, repairs, and maintenance?
• Why do you want to work with me?
• Where are the opportunities to expose my home to the largest market?
• What is your marketing plan for my home?

In today's market, homes, on average, are selling in 17 days and sellers are seeing an average of five offers.  It is not uncommon for homes to sell for more than the list price, assuming they are not priced dramatically over the market in the first place.

Specific to today's market, additional questions to help you identify the best agent for the job could include:

• With the shortage of homes on the market, is it necessary to update in advance?
• In this competitive market, is staging the home important?
• What are your thoughts on professional photography and video?
• Is there a way to stimulate competition among to buyers?
• Explain to me range of pricing and how it applies to home search on the Internet.
• Can you profile the most likely buyer for my property?

Don't think of these things as being an interrogation but more like an interview.  That is exactly what it is; you are trying to find out how this prospective agent is going to handle some of the intricacies in the selling process that can affect the successful sale of your home.

After evaluating the answers you receive, you will either move forward to have this agent represent you or you move in a different direction.  A third option, from our perspective, that occasionally develops is that we determine that we may not be able to manage the outcome that you are expecting.

Selecting the right agent to represent you, even in a Seller's market, is an important decision and you need to have all the help you can get making the right one.  We're happy to provide the answers you want and need and will disqualify ourselves if we believe that it is not in your best interest. Our reputation depends on satisfactory results from every transaction we handle.

Download our Sellers Guide.

A Sad Story Relived Over and Over

Ask any real estate agent and they will tell you a similar sad story.  The seller, whose home just hit the market, received an offer which was less than the list price, but felt secure their home would sell quickly and countered for more.  For whatever reason, the buyer did not continue to negotiate and moved on.

After a week or two and no other offers, the seller instructed the listing agent to contact the buyer's agent and say that the seller had reconsidered and would now accept their original offer. However, the initial enthusiasm the buyer had was gone and they were looking elsewhere.

This is a story that frequently happens across America, in all price ranges.  The lesson to be learned is that sometimes, the first offer is the best.  Consider the rationale, a home is fresh on the market and buyers, especially the ones who have lost bids on other homes, act quickly to hopefully avoid some of the competition.

When an offer is not accepted, it voids the original offer and, in this case, the seller makes the buyer a counteroffer; the buyer can accept it, make a counteroffer, or walk away.  Even if afterwards, the seller reconsiders and says that he will accept the terms of the original offer, the buyer is under no obligation to accept it.

Alternatively, if the seller accepts the buyer's original offer, a contract has been agreed upon based on the terms within.  The house is sold and closed once any contingencies such as financing and/or inspections have been satisfied.

Think of an example where a seller countered for an additional $5,000.  If he had accepted the original offer, the home would have been sold.  In essence, he bought the home back from himself in hopes of making an extra $5,000. 

To put it in perspective, on a $350,000 home, the additional $5,000 would have been 1.4% of the value.  As an investor, the risk involved in having to continue to own the property may not be justified by such a low rate of return.  Having the property sold may actually provide peace of mind and convenience that far exceeds the $5,000.

When a seller receives an offer, they are faced with three options. 

1. They can accept the offer and the house is sold considering the contingencies can be met.
2. The seller can reject the buyer's offer outright and wait for an acceptable offer.
3. The seller can counteroffer the buyer with terms that are agreeable to the seller.

Many agents feel that if the offer is not acceptable, the counteroffer alternative presents a greater likelihood of negotiating to an acceptable agreement between the parties.  Every situation is unique, but compromise has brought buyers and sellers to agreement in many situations.

One of the valuable advantages sellers have is their agent's experience and lack of emotional connection to the property.  Your agent can provide objectivity and alternatives for you to consider in making you decisions.